Flashcards in variable annuities Deck (17):
what is a variable annuity
-a retirement vehicle that can provide a lifetime income
how are variable annuities funded?
-funded with after-tax dollars
-money grows tax-deferred
-earnings taxed at distribution
earnings received on a variable annuity distributions are taxed as?
ordinary income taxes
advantages of a variable annuity account
-competitive rate of return
-protection against inflation
payout on variable annuities are paid out based on?
life expectancy of owner
when paying into a variable annuity account, it is called the?
accumulation phase and there is no max contribution limits
when receiving payouts from a variable annuity, it is called the?
annuitization phase and once a plan is decided on, there is no flexibility in distribution payments
how are variable annuities priced?
-pricing similar to mutual fund (NAV per share and unit value calculated daily)
what happens to dividends and capital gains on a variable annuity?
they must be reinvested
what are the three options owner can chose for the annuitization phase of a variable annuity?
-life with period certain
-joint and last survivor
describe the life only payout option
-straight life annuity
-largest monthly payment
-check until owner dies
describe the life with period certain payout option
-15 year payments guaranteed even if owner dies
-beneficiary receives check if owner dies for remainder of 15 years
describe the joint and last survivor payout option
-involves 2 annuitants
-pays check until both annuitants die
-smallest monthly payment
describe what happens with a lump sum withdrawals
-all earnings above cost basis taxed
-cost basis returned tax free
describe the AIR
-assumed interest rate
-conservative estimate of return on investments in the separate account
describe withdrawal penalties
withdrawals made prior to age 59 1/2 subject earnings to taxes plus a 10% penalty fee